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By Steve Vernon MoneyWatch December 4, 2014, 8:27 AM
Financial risk can be notoriously hard to spot, but there is one thing people can be certain of -- we get old. So why do so few people buy long-term care insurance?

In part, it's because only about 20 to 30 percent of the U.S. population is optimally suited to benefit from such coverage, according to a recent study by Boston College's Center for Retirement Research (CRR). But there are compelling reasons to make long-term care insurance a key element in your retirement planning.

For one, long-term care is expensive. In 2012, the average annual cost for a nursing home was $81,030, and the average hourly rate for home health care was $21. Yet only about 13 percent of the population buys long-term care insurance, which could help defray these costs. In theory, if consumers were rational planners, they'd buy insurance to mitigate the risk of running through their retirement savings on care.

Long-term care is defined as assistance with the basic activities of daily living, such as dressing, eating, taking medications, showering and using the bathroom. So it isn't medical care. As a result, neither medical insurance policies nor Medicare pay for most long-term care expenses, although Medicare will pay for up to 100 days in a skilled nursing facility (SNF) following a hospital stay and some medical insurance policies cover a minimal amount of assistance.

Medicaid, on the other hand, is a program operated by the states that pays for long-term care for indigent citizens; it usually requires that an individual first draw down most of their financial assets in order to be eligible. The availability of Medicaid has been cited as one reason why people don't buy long-term care insurance.

The CRR study calculated a "willingness to pay" ratio that analyzed the percent of the population who could expect to benefit from a long-term care insurance policy to cover costs that aren't paid by Medicare or Medicaid. The CRR study took into account:

• The likelihood of ever needing nursing home care in a lifetime, estimated by the CRR as 44 percent of men and 58 percent of women who had attained aged 65.
• The duration of such care, estimated by the CRR as averaging 0.88 of a year for men and 1.37 of a year for women.

Using the CRR's methodology, 19 percent of men and 31 percent of women had a positive "willingness to pay" ratio. These ratios are higher than the 13 percent of the population that buys long-term care insurance, so there's still a significant coverage gap.

So what's the bottom line for you? Consider the possibility that you could one day face potentially ruinous long-term care expenses.

Notably, the people most vulnerable to this threat have substantial retirement savings, since they won't be eligible for Medicaid until their savings are exhausted. Women are particularly in danger, since wives tend to outlive husbands (This is illustrated by the fact that the CRR's willingness-to-pay ratio is much higher for women than for men.)

Everybody should have a strategy to address the threat of long-term care expenses, which can include some combination of the following:

• Hold home equity in reserve as a source that can be tapped in case long-term care is needed (which might argue against using a reverse mortgage to generate retirement income).
• Buy a long-term care insurance policy.
• Maintain a substantial investment reserve that isn't tapped to generate retirement income, or only use interest and dividends for retirement income and hold the principal in reserve for long-term care costs.
• Be aware of lower-cost alternatives to a nursing home, such as a residential care facility for the elderly.
• Be vigilant about taking care of your health to reduce the odds of eventually needing care.
• Move close to family who could potentially take care of you, but make sure they're willing and able to provide this care.

With respect to this latter point, be careful! The need to provide care for elderly parents often derails the career and retirement plans of older workers, most often women, who typically reduce their hours or quit their jobs to care for an elderly relative.

Studies like the CRR analysis look for logical reasons why people should or shouldn't buy long-term care insurance.

Ultimately, the most likely reason people aren't buying such insurance is that the perceived threat of long-term care is so far in the future that it's a lot easier to ignore it. People just hope that they won't need expensive long-term care. But hope is not a strategy.
© 2014 CBS Interactive Inc.. All Rights Reserved.

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Speros Financial Retirement Tip of the day!
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Part-time work is the fastest-growing source of retirement income.
By Emily Brandon Jan. 27, 2014
 
Unlike most adults who depend on a single paycheck, most retirees receive income from several sources. Monthly Social Security payments, income from savings and investments and a part-time job are among the most common ways seniors are financing their retirement years. These and other retirement income streams produced an average income of $31,742 for people age 65 and older in 2012, according to a recent AARP Public Policy Institute analysis of Census Bureau data. Here's how older Americans are paying their bills in retirement:
 
Social Security. The majority (84 percent) of people age 65 and older received income from Social Security in 2012. "We still see that Social Security is the foundation of retirement income," says Gary Koenig, director of economic security at AARP's Public Policy Institute. "Pretty much everyone who is 65 and older receives Social Security." Social Security has consistently provided more than a third of income for retirees over the past two decades, and retirees in the lowest income quintile received more than 80 percent of their income from Social Security. The median Social Security benefit was $16,295 for men and $11,999 for women in 2012, AARP found.
 
Retirement savings. Just under a third (30 percent) of retirees receive income from either a traditional pension or take withdrawals from a retirement savings account such as a 401(k) or individual retirement account. The median amount of income retirees received from these sources was $12,000 per year. High-income retirees are the most likely to have a pension or retirement account from a former employer. Over half of retirees (55 percent) in the highest income quintile had retirement accounts that provided them with a median of $30,000 in 2012, compared with just 5.2 percent of people in the lowest income quintile who received a median of $2,400.
 
Many seniors have additional retirement savings outside of their designated retirement accounts, but in most cases, they only receive a small amount of interest income. While 47 percent of retirees receive interest generated by their personal savings, half reported $255 or less in annual interest payments. "There are some folks for who it is providing a significant amount of income, but the majority is not receiving much income from assets," Koenig says. The share of asset income from interest, dividends and rent has declined from 24 percent in 1990 to 11 percent in 2012, largely due to the decline in interest rates, AARP found. "The Federal Reserve policy keeping interest rates down isn't good for seniors. They need a magnifying glass to see how much they have been earning on their savings," says Pamela Yellen, author of "The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future." "Let's say you have $250,000 in savings and you planned on earning 4 percent. That's $10,000 per year. If that drops to 1 percent, as it has now, you end up with only $2,500 per year."
 
Earnings. Those who can't generate enough money to retire well though Social Security, pensions, or savings and investments are increasingly choosing to stay in the workforce at least part time. "If their portfolio, their investments, their savings that they have accumulated to retire with are not enough to provide them with the lifestyle that they want in retirement, then a part-time job is certainly something that they should consider," says Ken Moraif, a certified financial planner for Money Matters in Plano, Texas. "If you are 60, you could work for another 10 or 15 years part time to generate some income."
 
Some 22 percent of people continue to work during the traditional retirement years, earning a median of $25,000, the highest amount of any income source, AARP found. The proportion of income retirees earn by working has doubled from 15 percent in 1990 to 30 percent in 2012. "For people who are working, it is a very significant source of their income," Koenig says. "We anticipate that earnings will become a growing source of income for older Americans."

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Once you’ve purchased a life insurance policy, you may think that the hard part is over. But that doesn’t mean you can forget about your coverage. As time passes, you might want to make changes to the policy — and if you do, it helps to know the right language.
 
Here are some terms that may come up as you’re managing your policy.
 
Beneficiary
Your beneficiary is the person who will receive your policy’s death benefit. While you probably designated a beneficiary, or beneficiaries, when you bought your policy, you may need to revisit the selection over the years.
For example, if you divorce, or if one of your beneficiaries dies, you may need to designate a new one. You can also specify percentages of the payout for each primary beneficiary (for example, 70% for one and 30% for another) or choose contingent beneficiaries in order to prioritize who receives the life insurance payout.
 
Cash value
Permanent life insurance policies — whether universal, variable or whole life insurance — place portions of your premium payments in a separate account. This account grows as part of or in addition to your death benefit, depending on your policy, and is called your cash value.
Once you’ve built up enough cash value, you can make withdrawals or take loans from it in order to fund expenses or pay premiums. Keep in mind that cash value typically takes several years to start to build up.
 
Conversion
Some people buy term life insurance because it’s the best option at the time, then later find that they prefer a permanent life insurance policy. For this situation, many term life insurance policies have a “term conversion rider,” which allows you swap your term policy for permanent life coverage.

You won’t have to undergo a new medical exam to qualify, but you must generally convert within a certain time period after buying the term life policy. So if you know you want to switch, don’t delay. Ask your life insurance agent what the conversion time horizon is.
 
Dividends
You may have heard of dividends as they relate to stocks, and life insurance dividends are no different. They’re a piece of your life insurance company’s profits that you may be issued if you have a “permanent life insurance policy.” You can receive the dividend payment in cash, add it to your cash value which also grows your death benefit or use it toward premiums. Once the dividend is has been received the company cannot take it back.
 
Lapse
A lapse occurs if your life insurance policy is discontinued for nonpayment of premiums. Sometimes a lapse is intentional — maybe you decide you no longer need a term policy, or can’t afford your premiums. Or you might simply forget to pay your bill, in which case your insurer probably offers a grace period — around 30 to 90 days — to get caught up on payments. Universal life policies tend to laps if not structured properly in the beginning.
 
Maturity
Your life insurance policy matures when the amount you’ve paid in premiums matches your death benefit. Many policies mature when you reach a certain age, for example, 100 to 121 years old. When your policy matures, your insurer pays you the death benefit and the policy ends.
 
Reduced paid-up
When you switch to a reduced paid-up policy, in most cases your dividends will be used to pay for your premiums. If your dividends are not equal or greater than the premium you can use the cash value of the policy to match the difference. This will lower the total death benefit. But eventually your dividends will be greater than the premium and your policy will begin to grow once again. This is dependent on the insurance company that you are with.
 
Surrender value
If you decide you no longer want your permanent life insurance policy, you might expect that you can cash out — that is, cancel your policy and take the accumulated cash value. What you’ll get instead, however, is the surrender value of your policy. That’s the cash value minus any surrender fees, which will ‘vary by insurance company’. For the first few years, surrender fees will probably make it impossible to drop your policy and receive any cash value.
 
Your cash value is 90% tax free, the other 10 percent keep in in-force. When cashing out your entire policy, you will be taxed on the growth of the cash value inside the policy. Surrender fees are dependent on how the policy was structured originally. Always ask your life insurance agent about the surrender process, to make an informed decision.

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Speros Financial Life Insurance Tip of the day!
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Life insurance is an important part of your over all financial plan.

Some say it is a bad investment as well as you only need enough to pay the house off, since your spouse still works they will be fine, and that you only need it through your working years.

Protection part of life insurance through your working years
The reality is that life insurance is protection to your family in many ways. Yes you want to pay the house of if you die to soon, but you also made a deal with your family to always protect them and be there for them when they need you.  Well after you die that is when they need you the most. 

When I am talking to people about life insurance and they don't full understand it or appreciate what it can do for them. They tend to think there family will be just fine with the small amount they want to buy.  But the people who have see death always want to buy as much as the life insurance company will allow them to buy.

Your family will not go back to work the next day and act like its no big deal. They will need time to morn, in most cases that could be months or even years to get back close to 100%.  

The life insurance you buy today will be a replacement of your income to your spouse, the it will help with the bills of every day life. It will keep your kids in the home they grow up in, it will keep them in all the activities kids do. It will also send them to college and help start their lives as young adults.  It will also give your spouse time to deal with everything death brings, such as the funeral expenses, any over due bills, the time it takes to switch everything into there name (always thinking about you as they take your name off things and breaking down to cry)

If you think about it, besides the cloths on  your back and the food you eat, where does the rest of your money go?  A portion to your retirement savings and the rest to the lifestyle you are accustomed to for you and your family.  When your income stops coming in the portion to the retirement will stop, your spouse will have to figure that out on their own. The bills you pay for, well they might not get paid any more. The lifestyle your family is accustomed to- well that will have to change as well.

Protection in your retirement years
As you age your life insurance should age along side with you.  You can't tell the future and you are not sure when your kids might need your help. They might move back in at some point. Or they have families of their own and you still want to make sure they will be ok after you die. So protection is always a key part.

Heres where the bad investment part plays in.  If you are diversifying your retirement plan, you financial advisor will tell you to put part of your money in a safe accounts.  Hmm what are bonds and CD's paying these days. Well the permanent life insurance (that people say is a bad investment) pays about 2 to 4 times what those do. It is a safe money or bond replacement account. And if you are diversifying your retirement why is everything in accounts tied to the market? Permanent life insurance through a mutual company is not tied to the market, so you don't have to worry about the ups and down of the market. It acts similar to the ROTH IRA grows tax differed and is tax free when you use you need it.  Structured right you can put in more the 50x's what you can put into a ROTH IRA on an annual basis.

Also if you have an understanding of how income streams work in  retirement, this will play a HUGE roll in your over all planning, and you might not need to save as much money as you thought. 

There is a part that comes after retirement that most people tend to over look. That is the need for care, someone to take care of you when you can't do everything on your own. The benefits of Life insurance are pretty vast these days, But the only way you will know about these benefits is to take the time and learn about something that is not right in-front of you at this moment. 

Death is not right in-front of you, your retirement is not right in-front of you and needing care is not right in-front of you.  If any of those are then you will know the importance of proper planning and some will say I should have done more.

Don't be the person that says I should have done more, Just get it done now!

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Speros Financial Retirement Tip of the day!
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It seems strange to pay for something you might not use, especially if it’s an expensive purchase. Long-term-care insurance is no exception.

A traditional policy would cost a 55-year-old woman  $1,390 per year for $164,000 worth of benefits; a 55-year-old man would pay $1,060, according to the American Association for Long-Term Care Insurance’s 2015 price index. That may be why less than 5 million people held long-term-care insurance policies in 2013, according to research published by the Insurance Information Institute.

But forgoing long-term-care insurance doesn’t mean that you won’t need — and have to pay for — long-term care. A semi-private room in a nursing home costs an average of $80,300 per year, according to a 2015 survey by Genworth. A home health aide costs an average of $45,760 per year.
Which coverage should be priority? Fortunately, there are hybrid policies that provide both long-term-care coverage and life insurance benefits, so you can guarantee that your premiums won’t go to waste.

Hybrids combine life insurance and long-term care
Ordinarily, long-term care insurance and permanent life insurance are two different products that you purchase separately.

Life insurance pays the death benefit to your beneficiaries when you die. Permanent life insurance policies allow you to accumulate cash value within the policy, which you can eventually borrow against or use to pay premiums. Long-term-care insurance, on the other hand, defrays costs if you spend time in a long-term-care facility or need in-home help.

Hybrid policies — also called linked-benefit policies — combine the two. Your benefit level can be used either for long-term care or life insurance, or partially for both.

“You know you’re going to get something in return for your premium. You can either use the [long-term-care] benefits, or you can get the death benefit,” says Daniel Glanville, a financial advisor with Precision Wealth Management in Colorado Springs, Colorado.

Keep in mind that the death benefit and the long-term-care benefit of these plans are typically linked, which means that accessing the policies to pay for … long-term care … will reduce the death benefit.

There are a few other important differences:

Cost and payment structure.
Hybrid policies are typically funded in one lump sum or payments over a certain number of years, totaling at least $50,000. This can make them a tough sell for middle-income families. On the other hand, this structure protects consumers from the premium hikes common in long-term-care policies.
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Benefits.
​In general, hybrid policies have lower benefit levels per-dollar than traditional long-term-care policies, and they may not offer other features, like inflation protection. With medical costs rising, this could ding you in the future. For example, you might buy a policy big enough to cover three years of long-term care today and find that it only covers two years of care when you make a claim. Traditional long-term-care policies are the best for individuals whose primary objective is long-term-care coverage.
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